EP 100: John Warrillow: A Sell Side Business Value Pioneer

Ed Mysogland  0:01  
Today I had the opportunity to, to interview a hero, one of the guys I look up to, you know, I'm a big value guy, I've been doing it for model 30 plus years, as far as working on sellside value, whether it's whether it's the deal work that we do, or just assigning value to the deals that we're taking to market. And one of the guys that has always, to me been kind of leading edge of helping business owners understand value is John Warrillow. And you may not know the name, John Warrillow. But you probably know the name Built to Sell. And that is who we interviewed today or who I interviewed today. And John, you know, he's, I've served on his board I've I've helped, I've helped in different capacities over the years, and what they do, and I totally believe in their mission. And the funny thing is that, you know, when I think of value, you know, you got Shannon Prades, your girbau, skis, your Mercer's, there's so many different people that have contributed to value that in the appraisal community. But the disconnect is I think John has helped so many business owners or advisors like me, help business owners understand the drivers of what creates value in their business. And so yeah, total highlight this is episode 100. For me, one of the one of the gifts that John gave me was the be my 100th episode. And it was great. Everything that I had hoped for. And I am 100% certain you are going to love this episode. So enjoy my episode with John Warrillow of the value Builder System author of Built to Sell. Well, John, welcome to the show. Thanks for having me. Yeah. It's awesome. It is one of my highlights. So I appreciate you being here. And, and I, in my introduction. You know, I probably didn't do it justice when I say that every time but and I and I really believe that. But I guess I wanted to, I guess ask you right out of the gate to talk a little bit about value builder and Built to Sell and that whole system that you've created?

John Warrillow  2:46  
Yeah, well, you know, we we're on a mission to level the playing field for business owners as they approach their exit. We think that right now they're bringing a knife to a gunfight not knowing sort of the value of their company, how they can improve it. So I mean, the most prominent thing we do is something called the value builder questionnaire, which scores owners on these eight factors that impact their value, we give them a score on each, and then show them through folks like you how to improve the score on each of those drivers. So that's really where a lot of owners start. Their journey is to get an assessment. You know, some folks say, Well, why would I want an assessment I don't want to sell and what I, what I usually say is, you know, you're gonna do a gym, and the trainer says, Okay, let's let's do an assessment, right? But body fat percentage, you know, how many pushups you could do, and, and, and at the time, it's, it's annoying, but over time, you come to appreciate it, right? Because you can see what your weight was, when you started how many pushups you could do, then and now. And so I say to people, Look, you don't have to want to sell your company to know a, what the value of it is today, what it could be, and so you can track your journey. And so that's kind of what we do.

Ed Mysogland  3:56  
Well, I, in my profession, I've, I've known you, Edie known of you, and I've known you for a long time. And, and I, you know, I've never known your origin story, like how this whole thing came about, because, you know, I'm, as I as I was doing research, I mean, it there's a there's a gap that it seems that you were you were you were in your lab creating this whole thing. And I'm just curious to know, you know, how did this come? Because it I don't know where were you an entrepreneur? What? Tell me about how you got to this point?

John Warrillow  4:37  
Yeah, I've been involved with a couple businesses, mostly service companies. One was a quantitative market research business and it was a reasonably successful business. I think we got to about 6 million in revenue. We had a very unique niche and that we help big companies understand the SMB segment so our clients were like Microsoft and Bank of America those guys and it was very profitable business. We typical month we do 20 to 30% EBIT margins on some on 6 million it was it was a good business. And I went to a gun impairing Yeley m&a guy, like you ad in Toronto. And I said, you know, and woody are very What do you think it's worth? And I was gonna rubbing my hands together waiting for the number because, you know, I was in there thinking, Microsoft Bank of America, we're gonna get paid handsomely for this company and you know, and then Perry Sybil depends on the answer to a couple of questions what it's worth, I said, shoot and he said, Well, who does the research? And I said, Well, I'm involved in some of it, because it's these giant corporations, I gotta keep my hand on the pulse of the research. So I'm involved in that. Okay, well, who does the selling? I'm like, it's, it's Microsoft. I've got to get on a plane and go to Redmond if I'm gonna convince Microsoft to use our company. So I'm involved in the selling. He said, Okay, great. So we get the straight here research business. You're doing the research and you're doing the sell. And is that is that right? John? I'm seeing the writing on the wall. He says John, I, I can't sell your company. There's nothing here to sell. It's worthless. And I'm sure you've had to deliver a few times

Ed Mysogland  6:08  
grim, Grim Reaper, a business valuation? Yeah, it's it's brutal, right?

John Warrillow  6:12  
It's brutal. And, but that really kicked off for me a journey, where we really transformed that business and turned it into a subscription company I got out of doing the selling, hired some leadership team. And ultimately, it was acquired by a public company, you know them as garden group, New York Stock Exchange listed company. So it sort of had a happy ending. But not knowing that stuff, thinking my business would be valued solely on my EBIT da and my client list, which is what I sort of took as gospel for probably a decade, I kind of felt, I felt passionately about disproving that or sort of educating folks about the stuff I didn't know. And that's what triggered me to write Built to Sell, and then Built to Sell, in a sort of weird way kind of evolved into the value builder system. So that's sort of the, the short version of that story. Yeah,

Ed Mysogland  7:05  
well, you know, the funny thing is, I've always looked at value builder is serving the underserved. I mean, you were talking to an investment bank, and that that person clearly had an understanding of, of what drives value. And to, to bring it kicking and screaming into small business land. That's a that's a big win. And, and like I said, I never I, you know, I knew, I knew there was a business in there, I just didn't know that it was it was your business. But now I could totally see with all the data that you guys do, coupled with the mechanics of selling, I now see, I now see how it was put together now. Rewinding even further. So was your family in entrepreneurship? Or is this were you the black sheep and said, You know, I'm gonna start a business. Well, I

John Warrillow  8:00  
mean, again, I'm 52. So this goes back aways but my, I, my family emigrated to Canada, where I live in Toronto from England and my my dad, I was five when we moved here, my dad came here with no job, nowhere to live. And he had two weeks to kind of get both of those sort of that we we left England in the time that we came over on a ship, and he flew over and he had to get lots of stuff sorted out. So he was the original entrepreneur in our family, although he didn't actually start a business entrepreneurial. I mean, he took a chance and a Russian did pay off. He was in corporate in the corporate world, but But ya know, I, I guess, in a funny way, he he ran a magazine company in Canada as a manager, not an owner, but a manager. And he was involved in a magazine similar to Ink Magazine, sure, United States, it was called profit. And so I sort of got to know entrepreneurship, sort of through him and some of the magazines that they published. So that was sort of my introduction to it. Yeah.

Ed Mysogland  9:05  
Well, coupled with and if you look at it, it seems as though his fingerprints are built on or, you know, you can see them, you know, on some of of your authorship.

John Warrillow  9:17  
That's probably true. Yeah. Yeah.

Ed Mysogland  9:19  
So one of the things Yeah. And I guess I imagined it's probably five years ago, and when you rolled out that there are three different types of buyers that that your research shows, mountain climbers, freedom fighters, and craftsmen. So my first question is, can you describe each sure but then yeah, let's let's start there. So

John Warrillow  9:46  
yeah, it actually came out of research we did when I was in my former company. We work again with very large enterprise organizations, and they paid us a lot of money at Understanding how to market to SMBs. And what we did was a piece of qualitative research and qualitative research is where you really try to get underneath people's motivations, like why do people do what they do. And what we discovered was that you can categorize entrepreneurs into these three buckets based on their primal motivation, like what gets them up at night, what is their, their kind of knee jerk motivation, not what they're sort of socialized to do, but like in their sort of DNA, what is motivating them. And we discovered that there are these this group called mountain climbers, which is, which are people that are motivated to achieve, like their primary motivation is achievement is climbing mountains, they're literally climbing mountains, in their mind, they get to the top and they don't spend much time enjoying the scenery, they look around and try to find the next highest mountain to go climb. They're just, that's just what turns them on. Right. So that's in an entrepreneurial way, like someone like an Elon Musk would be like the quintessential mountain climber right? on steroids, he never settles and is always looking to take on huge challenges. The second group of folks is what we call freedom fighters, and their primal motivation is independence. And so they are not trying to create the next SpaceX the next Tesla, the next Apple, they are trying to create a business that can thrive without them, they love to be in control, you've heard entrepreneurs as control freaks, that's an old expression that I'm sure it's close to che, freedom fighters are the control freaks, right. And you can see that on their cap table, they're very hesitant to share equity, because for freedom fighters, you're having investors, a board of directors and Angel, all of that would be kind of winnowing away or chipping away at their independence. And for them, independence is their is their most important value. And so they would rather have a smaller company, and control 100% of it than a very large company where they're a minority shareholder. And so that's the freedom fighter group. And then the craftsperson group is the third, in fact, are arguably the largest of the three groups, and they're motivated by mastery. And we all know these these entrepreneurs, right? That the person who maybe comes in, installs your alarm or comes in installs your backyard deck, and they're they love what they do. They take tremendous pride in what they do. But they're not actually entrepreneurs in the truest sense of the word. They don't want to build a company, they want to do their work. And so they typically are self employed, they very rarely hire employees that are the most risk averse of the three. As a result, they don't they see employees as risk, and so they don't hire them. So these are the freelance copywriters, the massage therapists, the painters that, you know, deck installers who work independently, and those are the three motivations, you can broadly categorize business owners. And

Ed Mysogland  12:58  
so as you're looking at, at them, and I know that and the question, the backdrop of the question is whether or not are we making more? Are we making more mountain climbers today as a result of certainly the work that you do and the information that's available? Because you can, arguably, the the mountain climbers tend to be the most valuable? And I'm just curious whether or not, you know, are you seeing that trend? And I teach it at one of the local universities here. And one of the things I mean, the kids are just smarter. You have all this. We're seeing more colleges aligning with the entrepreneurs. And there's, to me, I think they're fast tracking into the mountain climber world. So what are you guys seeing? Yeah, and it's

John Warrillow  13:55  
interesting point, I think, when you know, there's, there's an old sort of traditional model, very patriarchal model where, you know, you worked for a company for 3040 years, you got the gold watch, and you retired. In fact, my father would have probably fall into that category. He's 79, nine years old. So he's the very eldest of the baby boom generation. And you know, for him, you got a job and you worked in a company, and then you retired. And that was that was the kind of model and so those businesses, those owners who think like him, call them baby boomers, if you want to use that old expression, I think do tend to think of their entrepreneurial endeavors as as a much more of a legacy as one company that at some point in the future, they will sell and retire, they're more likely to use retirement and selling a business as synonyms, like they don't draw the distinction between the two, whereas younger entrepreneurs, I believe, are much more likely to see the distinction between those two. They are much more likely to have multiple businesses in their careers and they are much more likely to build to sell effectively not necessarily have this kind of legacy business that they're intending to pass down to their eldest son, which is not what we used to do 100 years ago, right, right. That all obviously, probably for good reason is all gone. And so people are kind of getting into businesses and with a view to selling them now, the other thing you can't I think get away from it is just the technology has has has really added Jeff fuel onto this trend, because of course, technology businesses tend to be easier to sell. They're they're much easier than a service business where the assets obviously go up and down the elevator at night. And so as technology business, in particular, SaaS apps and SaaS companies and so forth had become more commonplace. It's just increased the volume of deal flow in that sort of space. And so yeah, I would tend to agree with you and your qualitative, we haven't done the quantitative analysis, but qualitatively, I tend to agree with you at that, that hill climbers, the proportion of mountain climbers is growing.

Ed Mysogland  16:06  
But I think they're there, they're there. You know, before I, I would say, there's a distinction between each of and I think the freedom fighters and the mountain climbers are starting to blur that, you know, what, I can have the freedom, but I can also have a just a great business that will operate without me.

John Warrillow  16:29  
Yeah, I presented them today as being like, very distinct, like, you're either a mountain climber or you're, or you're a freedom fighter. And that, and that's a mistake. There. They are shades of grey, there are prevalences, and their tendencies, but they're not like black and white. One thing that you can look for, and I alluded to it earlier, is the cap table, because you will find freedom fighters are very reluctant to bring external investors into the into their business because again, them that's just somebody looking over their shoulder, someone undermining their authority, someone's second guessing their work. That's just all they're allergic to that, right. So so. So that's the one that is one area where you can see some fairly stark differences between the two.

Ed Mysogland  17:16  
Well, I'll tell you, one of them. And I just, I just thought of this, and and we see in the United States there, that what the SBA is doing, I mean, where you can contribute five or 10% into a deal and the end that the balances is funded. You don't need a cap table, I think in in now, the baby boomers and, you know, go back a generation that you didn't have that luxury and so I think that's what what's prompting me to say, Yeah, I'm, I think that today's buyer is basketball reading through, you know, some of the freedom fighter benefit and moving closer to or moving faster into the, into the, into the mountain climbers. I don't know if that's right or wrong. But

John Warrillow  18:07  
yeah, no, I think that's true. And of course, there's an entire legion of new owners who are buying companies. And this is again, fueled by the SBA. And also, you know, Harvard and Cornell have entire courses dedicated to how to buy a small business. And so, you know, a lot of people who've seen the money private equity groups have made, we kind of get underneath the business ball and say, Okay, well, a bit of debt and a little bit of equity, I can give you maybe a little bit of a vendor take back and I can probably buy a company for a fairly small amount of capital. And that model is being taught at many universities around the country. And so you have these young people, two, three years out of business school, trying to buy companies, which is simply never happened.

Ed Mysogland  19:00  
That's good or bad. Oh, yeah, that's, that's yeah, that's a loaded question. Yeah. Yeah. Go ahead. Oh, you you want you want to go first. Do you want me to?

John Warrillow  19:11  
Well, I mean, I look, I get those calls all the time about value builder, right. So people call up and say, Hey, you got its technology companies. You know, I'd like to buy your business and partner with you. And we'd like to extend your legacy and and I look at their LinkedIn profile, and they're like, two years out of business school. And, you know, they were working at Home Depot as a greeter, like a year ago, and it's not a good look. And I so I look, I think there are folks who get who, who apply this and are successfully able to buy businesses. It's, it's a very good way to make money, like, but Oh,

Ed Mysogland  19:50  
no. 100% That's the quickest way to wealth is this path. I mean, zero question about that, but I'll tell you that I am with you. where it is not? And I don't I don't want to say manipulative because that's not what it is. It's just you don't know what you don't know. And, you know, you coming to the table as a, you know, a 24 year old. You know, it's, it's really hard for looks for someone to go, oh, you know what? The company trust? A I'm going to interest, you know, certainly there's gonna be some sort of debt, you know, some seller note I am going to entrust that to you. It just doesn't. It doesn't resonate. But But you're right. I mean, like I said, I teach over at the university and we've got a class called Venture planning. And that's exactly what they're doing. They're out looking for deals. And, and some of them have found it now, but boy, I, yeah, as a Deal Guy, it's like, it takes a real special person to get that one across the finish line.

John Warrillow  21:03  
Yeah, yeah. And most of the most of the debt is personal guarantee. But if you're 24, and have no assets, who cares? Like, it's fine. When you're 44 and have a house and like a bunch of stuff, it's it's probably not the best business model to follow. Because again, these these debt is personally guaranteed. So you know, it's for the kids, you can make it work, I think it's a great way to build some wealth. But for owners who are looking to sell I'm not sure it's the best way to add

Ed Mysogland  21:35  
value, and people are going to hear this and I can't believe you know, I just said that. Because I said, you know, your first loss is your least loss, if you want to risk it. Now's the time to go all in? And yeah, I don't know whether I don't know whether that's good advice or not.

John Warrillow  21:54  
Yeah, I think generally, like entrepreneurship is building a successful company, it has to be one of the most difficult things there is to do. And I think one of the things, we started this conversation going back to advising Microsoft and Apple and Bank of America on marketing small business owners, and what I used to try to drill into their heads is, you call them small business owners, right? And you kind of look down your nose and tail, they've got 5 million in revenue, this is a little 3040 employee company. They have no clue what it takes to build a 30 employee company. The the ability to build a 3040 employee company is a very, very, very tiny percentage of the pie. Even if you look at the statistics, only 4% of businesses in the United States ever crest a million in sales. Sales is probably 678 employees. Right? So you get to 3040 employees you're probably in the like the 1% club right yeah. And and and you know how to negotiate a lease you know, to hire you to fire to write a marketing plan United do operate, I mean, you have to know every aspect of a business owner present. And and I just think I think people looking at the from the outside looking in, I have no clue. I have no clue. And so equally 24 year old with an MBA is like literally has no clue what it takes to run a company, and I think are woefully underprepared for

Ed Mysogland  23:29  
Yeah. And I agree with you. I mean, I think there's some, there's some outliers, but I, I, yeah, I just, I think the entrepreneurship, or groups out there, one of the best things that have come out of our classes is that it helps you figure out that you aren't an entrepreneur. This is, you know, some of the things that that we teach in, and it's like, you're not wired for this, if you think this is bad, just wait to you're risking your own money. Yeah.

John Warrillow  24:01  
I just did an interview as part of just for getting off it. But I like just literally did an interview with the guy who built a little company. And he wanted to go after fraud and the government and people trying to, to take advantage of Medicare and unemployment. And he built a little algorithm little software package that allowed him to kind of look up to different databases and figure out who was trying to cheat the system, right? He went for two years without making a sale. Obviously, government organizations are so slow to move two years, invested $700,000 of his own money before he made a single sale.

Ed Mysogland  24:45  
Now that there's your guy,

John Warrillow  24:48  
like that's, that's entrepreneurship, right. Yes. It's, it's, it's, yeah, it's

Ed Mysogland  24:53  
a lot and that's, but that's the guy that's sitting there and he's The value builder client that now he, because he will start off and he'll remember that 700 grand. And he'll remember that risk, and he's going to figure out somebody needs to pay me for for the risk that I took. Let's go. Let's go talk about whether or not that's even possible. So yeah, I love it. Well, you know, I don't think anybody's, you know, I in the introduction, you know, I don't. And I mean this, and I'm not just stroking you could draw on my podcast, but, you know, I do believe that you have opened the conversation, the value conversation for so many businesses that I do put you in, in a different category as far as being a business value pioneer. And, and I, here at what 70,000 People have gone? These are these are businesses that have gone through the value builder questionnaire, right?

John Warrillow  26:02  
Yep, more than 70,000. Now,

Ed Mysogland  26:05  
you know, I was telling somebody today that behind every one of those questionnaires, there's a family, there's employees, there is, there are there is so much more that goes behind, just simply going through this process, there's so much more at risk. And there's so So, so don't be flippant about, about what we're doing here. Because it it means so much more than what you believe. And so that's what I was when I was talking about 70,000 data points, or 70,000 businesses, you know, you look at who else has that data? Now, what do you do anybody that has this many businesses that have filled out whatever 62 questions about their business? I don't know.

John Warrillow  26:59  
No, I don't know.

Ed Mysogland  27:01  
So, but that that's where I'm heading is Alright, so let's talk about your crystal ball. I, you know, has, to me the value builder system, if you do it correctly. I think it makes businesses more saleable. So my question to you is, like, when you look at value builder, Eos, all these online, hey, we can help you sell your business courses, you know, you would think more businesses would be farmed, you know, that the the velocity and the deal flow would be higher. And I'm not certain that it's there yet. I still think that there's a stubbornness to business owners. And I guess that's where I wanted you to kind of comment on, you know, where do you see the crystal ball here?

John Warrillow  27:52  
Yeah, I mean, first of all, I would agree with you business owners are are, can be very stubborn and jaded maybe is another word that I impart, because, as I said earlier, they're the ones who have invested the 700 Grand, and they're the ones who put in the blood, sweat, and tears and, and are very skeptical of charlatans and people that are trying to take advantage of them. So there's a high degree of skepticism out there. So I think that's a real thing. I think there's also a hesitancy to want to give up their their baby, there's they've got a lot of identity built into this. And I think entrepreneurs are also, by their nature optimistic, if you were a pessimist, you wouldn't start a business, you would go work at the government or Procter and Gamble or some large company where you could hide in the bowels of that business. Instead, you start a business. And by definition, you think tomorrow is gonna be better to today, you are optimistic that your ability to have agency over your life to control your destiny, it's in the gene pool. And as a result, if you think about that, and you think tomorrow is going to be better than today, why would you sell today? Because tomorrow is going to be better at, I'm going to sell that new product, I'm gonna get to get the next location set up. And, oh, I know, there might be another pandemic, but we'll be fine. And I don't think they're wired to be optimistic. And so when just like nobody thinks they're gonna die, or nobody wants to have that conversation. You know, I think entrepreneurs are hesitant to have the conversation because they're optimistic by nature. So I don't know the answer to your question. I don't have a crystal ball, but I can share with a little bit about what the data tells me but but I think there's some kind of qualitative things going on as well.

Ed Mysogland  29:41  
Yeah, well, I I do yeah, I I'm I've known you a long time and I did not know I, I I've never heard you talk. The optimism conversation like you just said and but it makes total sense of, you know, That's, it's gonna be better. And then the problem is when it stops becoming better, then it then then it moves into a, into a situation where, and I just wrote an article I just posted on LinkedIn called the five stages of grief in m&a. And where we start talking about just that, that you move into a posture of denial, you know, and then you move into anger and bargaining and, and so on and so forth. And so I it's interesting, when, when you talk to these sellers, that they stop, if that may be the tell, if you stop being optimistic about what tomorrow brings? Yeah, maybe that's this, this this is your this is your signal, amongst all the noise, it's time, you know,

John Warrillow  30:54  
yeah, it can be hard to lead a horse to water in a sense, because what we know, and I'm sure you've seen this, in your own work, is that business owners tend to think about the value of their company, when they're reacting to one of two things. The first is that they are approached about an acquisition, they're approached by a buyer, private equity group, increasingly, you know, an individual investor knocks on the door says, Have you ever thought about selling and that's what triggers the thought of my wonder what it's worth. The second, sadly, is as a health event, right? Where they have some sort of, you know, heart attack, Are they someone they love ends up in hospital. And they think, Well, life is short, I need to, I need to get on my front foot here. And those are two, what I what I tend to talk about is, in both of those scenarios, you're on your back foot, you're reacting to something that's coming at you, and anyone knows anything about negotiation theory or you know, business strategy, you want to be on your front foot, you want to be controlling the dialogue not being, you know, talked out or dictated to. So it's it, it's, it's, you know, it's it's a challenge, but what we hope to do is intercept business owners when they have been approached, and we can quickly give them a thumbnail, you know, value and some ways to prove the value over time. Yeah.

Ed Mysogland  32:18  
So when we talk about, everybody's talking about, at least in the United States, the silver tsunami, I haven't, I've seen some waves I haven't seen I shouldn't even say waves I've seen some weeks. Now there's not a there's not a pulse, there's no hair there is just ripples. It's not a tsunami. And, and, and rightfully so actions and rightfully so. But I do you think that, you know, if you're if you're you want to hold? Do you want to hold the business and get carried on? Rock on? I mean, that that's up to you. But But in I guess what I'm asking is I wanted to know, do you guys track kind of the deal flow and velocity of of those those groups that are coming through your through the system? And then exiting? Do you got you guys track any of that?

John Warrillow  33:10  
Yeah, we look at the proportion of our users who have received an offer in the last 12 months. It's up a little bit, but it hasn't, hasn't moved tremendously in the last couple of years. So it's, again, it's a single digit percentage points, but not as some people thought it would double triple. I think one of the things that we have to remember is obviously, the pandemic was disruptive for a lot of businesses. And so, you know, most people kind of got back to work and internist and 22. So now they're really only getting their first full year p&l That's not been dragged down by the by the pandemic. And so I think there is some pent up demand to sell among owners who want to get one or two more years of decent numbers under their belt before they go to market. I think that I've heard that I do genuinely believe that to be true. Interest rates course, we haven't talked about yet. But of course, they obviously impact a lot of these deals, because borrowers, buyers of companies, in particular, individual investors, but also private equity groups, and even some strategics have to borrow the money. And that money has gotten twice as expensive as it was two years ago. And so that has somewhat offset what I think would have been a natural influx of sellers is the buyers are having to get debt and the debt needs to be repaid. And it's expensive.

Ed Mysogland  34:33  
Yeah. Well, and and again, you're right I mean, the borrowing power of of the buyers is limited in that and you have you have the you have the value. Yeah, here's the value. But here's the the maximum borrowing power of the buyer, and you've got a delta between the two of them. So who's who's going to blink? I don't see any mezzanine financing sources that are coming to to a bunch of rescue And now because the money would be too expensive. I'll tell you one of the things that we have seen is here in the United States with this idle loan, the disaster loans. I mean, that's 3% money. That's assumable. That's a third, that's 30 year money at three and a half, or three and three quarters percent. Yeah, where you can you can assume that and that that lowers your total cost of capital. So, I don't know, there's there's some, there's some, there's some hope for for, for some of those sellers that have the availability of assumable debt, but generally speaking, you're right. I mean, it's, it's, it's a tough one to, to get past. Yeah, just the cost of capital. And

Ed Mysogland  35:47  
so, if you had to do over, like, you got the value Builder System, and so 70,000 people have gone through, the thing is clearly grown over the over the years. If you had to do a do over, well, what would it? What would you have done

John Warrillow  36:04  
differently? Hmm, I mean, there's probably, there's probably a few things. One that comes to mind. I don't know why. But I think we would have given more thought the names of drivers. So there are eight drivers in the value builder questionnaire, and, and some of them are big, Goofy. So one name we refer to as the Switzerland structure. It's inspired by the country of Switzerland, which, as you know, is like obsessed with independence. And so it measures with some structure measures a company's independence of any customer employer supplier. But it's one which is very polarizing. For a lot of our users. They're like, why do we call it Switzerland structure that's not the same as customer concentration. So there's, we have a lot of literal users and I say users, as well as advisors. And you know, there isn't a tremendous amount of creativity and so that sort of thing. Another one is like we have we call one evaluation teeter totter is about cash flow in a business. In the UK teeter totters are not teeter totters are called seesaws. And so it's like, I guess, I'm giving you a fairly superficial answer two questions ago. You know, like, once you have 70,000 users, and you've got all that historical data, the last thing you want to go do is change that assurance, because it's like, there's great benchmarks there. Right. And so yeah, that's how

Ed Mysogland  37:39  
you know, it's funny. It's funny, you said, because I did, because I use it today. And we had that conversation. So is that right? Yeah, it's like, what? Valuation teeter totter? And but once you explain it, I mean, it makes perfect sense. I mean, that's a good analogy. It's, yeah, it's just teeter totter. You know, adults often don't use teeter totter with other adults very often,

John Warrillow  38:07  
it's so true, yeah,

Ed Mysogland  38:09  
I might change that. Now, I can't change that.

John Warrillow  38:13  
I said, if I had to do it all over again, I might have changed that. So let's just,

Ed Mysogland  38:20  
essentially, since we're talking about the value, the value drivers what, so there's eight of them, you know, I outside of hub and spoke and Hub and Spoke is is the, the, the value or the importance is centered around the owner. Which of the drivers would be most important?

John Warrillow  38:44  
recurring revenue is probably where you're gonna get the biggest bang for your buck, your recurring revenue is revenue, obviously, that that is, is virtually guaranteed to come in. And since what people buy on a service contract or encryption, it's often confused with reoccurring revenue. Interestingly, reoccurring revenue is, is revenue that comes back but without any kind of predictable cadence. So like a rash that might come back every once in a while, but you never know what's gonna come back, reoccurring revenues, customers who repurchase from you, but there's no cadence to it. Whereas recurring revenue is predictable. And the reason it's so valuable, obviously, is because when an acquirer buys your business, they realize you're going to be on a golf course on the beach, and they need to know how your business is going to continue without you. And so recurring revenue can give them a sense of competence that it will continue. It also allows them to borrow more money in some cases, because the business is more stable and more predictable. And it's not necessarily just the domain of software companies. So you know, I just did a webinar actually a couple days ago about this topic, but there's lots of examples. You There's a, there's a flower company that sells flowers on subscriptions and hotels that want fancy sort of reception tables. So there's this sort of all kinds of different industries that have found a way to create some recurring revenue, which, which, which really just juices the value of their business tremendously.

Ed Mysogland  40:20  
You know, I knew I, since you wrote the book, automatic customer, I, for the life of me, I don't know why I didn't add both of them. Like, you can't say hub and spoke and you can't say recurring revenue. So which, what? What's number three?

John Warrillow  40:36  
Number three, you know, I was gonna, you know, sort of a toss up but to your current revenue, and number three is monopoly control. monopoly control gets its name, as goofy as it may seem buy from Warren Buffett. So Warren Buffett is famous, as you know, for investing in companies with a deep and wide competitive moat. That's his one of his main criteria for investing. And why does he do that? Well, he does that. Because when you've got a moat, you've got some Pricing Authority, you've got a competitive advantage that's not easily replicated. And so that gives you Pricing Authority with Pricing Authority that gives you more margin, or margin allows you to invest in sales and marketing. And it creates a sort of domino effect that builds on itself. And so monopoly control is the attribute we refer to as really do you have something that is truly unique, something, something that makes you different. And one of the biggest mistakes we see is people tend to bury what is really unique about their business, in a sea of other offerings, and it's natural, right is you start a business with a specific vision, you create a great product, and then you want to build the business. And the fastest way to build a business is to cross sell your existing customers and other products. But what you don't realize is, with every product you cross sell, you're diluting, provided, it's not something you're uniquely advantaged to do, you're diluting your kind of core jewel in the crown. And given the choice. And you've seen this that I'm sure most acquires will apply the lowest multiple among the group. So they'll look at 10 different business lines of 10 different products. And they'll say, Okay, which one is the is the worst multiple, apply that to the entire group. And we do this with cable channels, right? When we buy television, we only pay a very small amount per channel, because we don't want half the channels that we have to buy, right. Whereas on a per channel basis, we pay much more for ESPN or Disney or Netflix, because per channel, we're willing to pay a much higher price for something that's pure. And so, you know, the temptation I think, is for folks to build their business by cross selling. And I think that's a great way to build your revenue. But for if your goal is building value, it's it's probably better to focus on the one or two products that really make you unique in the marketplace. And and focus on those you know, there's this old expression that revenue is vanity and value is sanity. I think the actual expression is revenue is vanity. Profit is sanity, we'd switch it to value is Saturday, because focusing on what drives the value of your business, I think is what is what creates the long term win for entrepreneurs.

Ed Mysogland  43:26  
Yeah, I agree. So what oh, if anybody's ever asked you this. So what's the what's on your bookshelf that would that every business owner should read? I mean, so Built to Sell is? I hear that often. So what else is on what else is on your bookshelf that every business are probably should familiarize themselves with?

John Warrillow  43:50  
Yeah, look, I'm a big E Myth fan. I mean, E Myth, Michael Gerber was the one who sort of originated the entire kind of category that the bill itself was finds itself in. So if you haven't read that, I think that's definitely worth the read. You know, depends if your pension is for kind of very practical or more inspirational. I tend to find myself reading more business biographies of late, less tactical and more. I want to hear the story. So right now, I'm reading the New Elon Musk book, The Isaacson book. Yeah. Yeah.

Ed Mysogland  44:27  
Yeah, if I can, like give. You see how big that book is, you know what I bought? Oh, my gosh, I don't know if you have enough if you have enough storage to get that book. Oh, my God. Yeah. Yeah. It's

John Warrillow  44:41  
big. Walter Isaacson is quite an author.

Ed Mysogland  44:44  
I love him. Yeah.

John Warrillow  44:46  
I read the job Steve Jobs book and read a few others. I am a big fan of business priorities. And I think I just enjoy hearing the con texting the history, I've become a bit of a history historian of business and liking the history more than I ever did. So I'm a little bit less on the practical a bit more on the business biography of late. So I definitely recommend Elon Musk book it is. It's big, but it's good. I'm only a third of the way through it, but it's, it's good read.

Ed Mysogland  45:19  
Yeah. Awesome. I love I love the what's the first page in where he said, You know, I, you know, I'm redesigning electric cars, and I'm trying to send a man to the moon, did you think I was going to be normal? I don't know. I don't know where the quote was. But yeah, I love that as page one. Yeah.

John Warrillow  45:43  
Yeah. I can't remember who that was in reference to you. But it was some conversation. Yeah. Speaking at some university commencement or something like that. But ya know, I recall that it's a great, that's a great point. I mean, the guy, he's done more in his lifetime than unbelievable, will ever do in 10 lifetimes.

Ed Mysogland  46:00  
Amen to that? Well, I know we're bumping up on time. But what's come what's coming next, we're built to sell or value builder. Yeah, books, any you got to you put your fourth one out here in a couple of years back with the art of selling so what, what, what's, what's next on the John Warrillow docket?

John Warrillow  46:23  
Oh, man, you know, like, personally, I might actually write a fiction book. Nice. I gotta be curious a little bit about about that, I think I think I would love to do that and make it. I'm longing for the sheer creativity of it, as opposed to having to make everything right. Because when you read a business book, you know, you have to do the research, make sure you got the right quote, and you know, the right statistic, and you quote, they're like your sources and writes, I don't want to do any of that stuff anymore. But I, I'm gonna keep them maybe running another put a fiction book. So that that might be me, personally. And, and yeah, I believe we got a ton of stuff coming up, or we're doing a refresh on the value but a report, we're really leaning into assessments, valuable to report the pre score report in the freedom score, that's sort of the trifecta, the three sort of legs of the stool. So we're really leaning into product development standpoint, sort of refreshing some of those products, which we're excited about.

Ed Mysogland  47:22  
It's having seen where it started and where it's going. It's It is awesome. I will tell you that the research and a lot of the things that you do make the things that I do a lot easier than others kind of you know, and like I said, I'm not stroking you, because you're my 100th Episode guy, but, but you know what I'm saying? So, last question I asked this on, I've asked it. Now, I'll have asked it 100 times. So what's one piece of advice you'd give the listeners that would have the most impact on their business? What would it be?

John Warrillow  48:02  
Yeah, this is a good question. You know, here's the thing, I think a lot of your listeners are probably parents. And if we're honest with ourselves, as parents, I know that you're proud father, you know, maybe in our dreams, we think about, oh, maybe they'll be the quarterback for Alabama, or maybe they'll go to Harvard, or maybe they'll do some amazing thing. But I think if we're honest with ourselves, we would love to think that our kids will grow up to be independent, happy people. And if we if we're able to do that, it doesn't really matter what they achieve in life will be will, you know, job well done, we'll be able to pat ourselves on the back on the rocking chair of life and know that we've done a good job. I think that's the parents sort of responsibility. And so what I would invite your listeners to do is, is apply the same lens to their business and say, instead of, I'm the CEO of my business, I'm going to grow it to another X million in revenue or next door. I'm going to think of my role as the parent of my business. And the ultimate arbiter of my role as founder is, do I create something that can live independently happily in the universe without me? And if I started making decisions about my business, more like a parent makes a decision with their teenagers knowing that, yeah, they're gonna have to skin their knees a little bit to learn the lessons and we've got to let the rope out occasionally and let them but not too much until they're ready for etc. Like if we thought about our role as founders and CEOs, as a parent, as opposed to a CEO, I think I think we'd make better decisions. I think we build more valuable companies. And I'll just leave your listeners with that thought,

Ed Mysogland  49:48  
Oh, the what a great what a great analogy and, and I can't help. The question is, as I heard that because that was that was really eloquent and true. Yeah, and the funny thing is, I'm sitting there going, am I talking to an author that owns a company, you know, like, like, like, you know, an author that just happens to own a company? Or is it a business owner that just happens to like to write because I mean that that was, you know, that's a, you know, when when you listen to the tape, you ought to steal that from yourself and put it in your material? Because that's a great analogy. Oh, man. Well, you know, John, thank I, you know, one of the hot highlights of my career and I and I told you this before was was serving on your board I, I loved working with with your team, and that whole advisory board and they were, it was awesome. And, and I miss being on the inside of what goes on in a gets to have you back,

John Warrillow  50:51  
even alumni board or treat,

Ed Mysogland  50:55  
right. But it's been it's been a lot of fun to see what what you've done and the impact that you've made on business hours. And like said, I don't, I don't grant it, we're only talking 70,000. And in the in the, in the expanse of all businesses, but you've made a real dent in helping business owners far more than I think people either know or give credit to you for doing so. Thanks so much for coming on and spending some time with me, you really made my day.

John Warrillow  51:30  
Oh, well, I appreciate that. Thank you for being a great board member and contributing to the art of selling your business with your sage wisdom. So I'm grateful for that as well. So thank you for having me on. It's a pleasure to be with you.